With artificially intelligent technology on the rise across industries, learning about investing in AI is top-of-mind for many Americans. As people observe the rapid growth of innovative companies utilizing AI tech, there’s been a natural spike in interest around AI investing. Predictions that the AI market size will be worth $390.9 billion by 2025 motivates people to understand more about this business sector.
From machine learning to pattern recognition and predictive modeling, it’s not easy to keep up with different subsets of artificial intelligence and how they’re impacting businesses. Since AI is such a broad category of technology, sometimes it’s overwhelming to even understand the basics. When you’re considering investing in an AI-driven company, it’s crucial to learn as much as possible about these types of investments. If you’re curious about delving more into the topic of AI investing, check out our guide.
This guide will cover:
What Is AI Investing?
Artificial intelligence (AI) is a series of programs and algorithms that mimic human intelligence to efficiently perform tasks usually completed by humans. The term “artificial intelligence” was coined in 1956, so AI isn’t a new concept. However, the capabilities of AI have improved drastically over the past two decades, ushering in a new era of technological advancements.
AI touches almost every aspect of our lives. It’s hard not to notice the influence of AI technology, whether it’s at home with smart devices like Google Home and Amazon’s Alexa, or shopping online with chatbots that recognize our consumer behavior.
AI investing, or learning how to invest in the AI market, is spiking in popularity thanks to its rapid growth. As AI becomes more integral to various companies and industries, stocks across various industries are becoming more desirable to some investors.
However, even though research and development in this area are growing exponentially, people still need to be careful about placing bets on developing technology and tools. As with any type of investment, there will always be an element of risk involved when investing in AI.
Trends in AI Investing
With AI investing rapidly spreading across the globe, it’s no wonder that people are paying attention to its growth more than ever. Across various fields, there are over 400 use cases and applications for AI. Leaders in AI development include tech giants like Google, Microsoft, Amazon, and IBM. At the same time, startup funding for lesser-known AI disruptors has been steadily climbing as well.
What makes AI investing particularly interesting is its potential to be sustainably lucrative. Banks and financial services firms are building powerful AI strategies and utilizing the technology to streamline fraud detection, wealth management, underwriting, and more. In construction and manufacturing, AI can streamline products and experiences. AI also majorly impacts industries in healthcare, education, and safety.
Three main signs indicating AI investing trends are the following:
- America’s top banks are using AI now more than ever before.
- America’s top companies are using AI technology to improve personalization and customer experience.
- Funding for AI startups has been steadily climbing over the past decade.
Factors to Consider Before Investing in AI
Before diving into the world of AI investing, it helps to consider both qualitative and quantitative factors. The ability to find quality investments based on market opportunities isn’t enough, because even solid, profitable companies can be a poor financial investment if the stock prices are too high for you. To position yourself to wisely purchase AI stocks with strong return potential, understand performance and valuation metrics.
Before you decide if an AI-driven company is worth your investment, you’ll probably want to take note of the following:
- Research companies fully. Understand a company’s business plan and its track record for success so far. What are their guidelines and processes, where are their headquarters and manufacturing facilities, and what are their growth plans for the future?
- Look for the company’s price-to-earnings ratio. Even if you feel strongly about investing in a company, don’t let those emotions cause you to give them the benefit of the doubt. When it comes to their financials, you need to understand the ins and outs. How much debt do they have? Are they currently profitable? Understand the current share price relative to its per-share earnings, too.
- Figure out how much risk is involved. How can you tell how much risk is involved with one company’s stock compared to the rest of the market? You can start by determining a company’s beta, or measure of volatility in relation to the broader market, before investing any funds. Calculating a company’s beta isn’t difficult, and it can save you trouble in the long run.
- Determine if the stock has a high enough dividend to be worth it. Investors can determine which stocks pay dividends by researching financial news websites. Don’t have false expectations — you shouldn’t expect a dividend from a startup.
- Keep an eye on the company’s stock chart. Look for some of the most simple cues from stock charts to gauge price movement. Also, consider how the company would be affected by different economic factors and potential changes to the market it serves.
Companies Shaping the Future of AI Technology
Many of the companies providing AI technology through their cloud platforms are household names, like Google, Amazon, IBM, and Microsoft. However, there are still plenty of other companies in other sectors that are shaping the future of AI investing. Below are six of the AI-investing business leaders to keep an eye on. We are not in any way recommending that you invest in these companies, rather these are examples of the leaders in investing in AI.
1) Amazon. Amazon Web Services offers both consumer and business-oriented AI products and services and many of its professional AI services are built on consumer products. For example, the Amazon Echo brings artificial intelligence into the home through the AI bot, Alexa.
2) Alphabet. Google’s parent company Alphabet is deeply invested in furthering its AI capabilities, along with acquiring numerous AI startups in the last several years. In addition to using AI to improve its services, a number of AI and machine learning services are sold to businesses via the Google Cloud Platform.
3) IBM. IBM has always been a leader in AI innovation, but its efforts in recent years are around IBM Watson, including an AI-based cognitive service. IBM has been acquiring multiple AI startups over the years as it competes with other industry leaders in this space like Google.
4) Microsoft. Microsoft has a wide range of AI projects that can benefit both businesses and consumers. For example, Cortana, the digital assistant that comes with Windows, is designed for business clients. On its Azure Cloud Service, Microsoft sells AI services such as bot services, machine learning, and cognitive services.
5) Alibaba Cloud. Alibaba is the top cloud computing platform in Asia. It offers business clients a sophisticated Machine Learning Platform for AI, including an intuitive, user-friendly visual interface.
6) Salesforce. Salesforce developed Salesforce Einstein, their artificial intelligence service. Their latest initiative, which includes an extensive team of data scientists, uses machine learning to help employees streamline various tasks. It looks like this technology will also become more widely available in the near future.
There are tons of helpful resources for decision-making about investing in AI. Regardless of how financially savvy you are, there’s always more to learn about how to invest in the most efficient way possible. Your financial portfolio should be as diverse and robust as possible to set you up for long-term success.
One of the best ways to start the process of educating yourself is by reading free insights from reputable technology and finance research publications. Try reading MarketWatch and Morningstar on a daily basis to keep track of the latest and most accurate company information. By analyzing a company’s financials with a critical eye before making investment decisions, you’ll protect your personal financial health.
We hope this piece could be a solid introduction to some of the concepts and trends that explain why AI has promising potential in the world of investing. AI investing presents various exciting possibilities for the future, but investors should still proceed with caution. When it comes to investing, always do your due diligence to avoid losing money. AI technology is seamlessly integrated into aspects of almost every industry. Focus on budgeting and consider investment decisions that are best for your long-term financial health.